An Australian investment banker has urged the world to ready for China’s RMB currency to become one of three world financial yardsticks as the powerhouse economy increases the pace of internationalization of its RMB. It would sit alongside the United States dollar and the Euro, and would be paralleled as a currency yardstick by China’s significant shift in its next five year plan from an export-led economy to one that is consumer driven at the domestic level.
Speaking in Adelaide at the Australian Resources Chinese Investment Congress, chairman of Shanghai-based boutique investment bank Capital Eight, Joanne Wood, said China is rapidly internationalizing the RMB with the aim of alleviating pressures on its domestic economy. “The strategy is four-pronged and seeks to position the RMB as a pricing currency, a settlement currency, a reserve currency and one with full capital account convertibility.
“There is already almost a quiet acceptance level at the IMF and among other money markets that the RMB will move into the top three echelons by 2016 at the earliest but more likely by 2020-2025,” Joanne Wood said.
“This focus has been under way by China since 2007 but the pace of the momentum is now being ratcheted up, following earlier moves to enhance RMB demand, promoting exports by providing RMB trade credits to foreign buyers and experimenting successfully in Hong Kong, Macau and Asean operations worldwide of RMB trade settlements. As a consequence, the RMB driven change in currency yardsticks represents the largest change in the global financial landscape since the Global Financial Crisis.”
Internally, the promotion of the RMB had crystallized significant growth in currency funds within China to a point they outnumber foreign currency denominated funds by two to one. “There has of recent times been something like 1600 private equity funds created in China holding well in excess of US$6 billion,” she said. “The explosion in fund numbers has however, created opportunity for major foreign funds management groups to be part of the process in providing efficiency and operational guidance.”
Joanne Wood said internationalization of the RMB would also mean it would not be too long before China’s banking system was as open as anywhere else in the world. “It is not yet a level playing field between foreign and Chinese banks in China so the local banks still do have advantages but new rules and regulations are coming in that will change that equilibrium.”
On China’s economic setup, she said China’s next five year plan, starting in 2012, would be a fundamental shift in that country – moving from one driven by an export focus to development of the domestic economy and consumption. “This pivotal shift will be across all industries, and it is essential Australian investors or traders with China, come to understand this.
“The momentum of the past recent five year plans will not change as they are set and working. The new focus will be on new strategic industries including advanced and hi tech engineering, new generation IT, modern services, alternative energies and green and clean technologies.”